Executive Director, Leadership Alabama
"Imagine with me a tax system that would be designed
to create jobs and a positive climate for business. A system that
responds to inflation and the business cycle, and to structural economic
changes over time. Imagine paying taxes in good faith, knowing that
those having more assets, property or income than you do will pay
more, and those with less will pay a fair share, but less than they
do now. We can have that and more, but it will take the resolve of
the citizens to make it work and the political leadership that responds
to the strength of that resolve." That is a quote from an article
by Dr. William Raabe, professor of taxation at Samford University
School of Business, and one that is especially appropriate for those
of us gathered here today.
Now most of us here can imagine just such a tax system.
In fact, that is precisely why we made our trip to Tuscaloosa... to
start the process of revising our antiquated constitution and to open
the door for a fair tax system that will meet the needs of all of
our people. We believe that constitutional reform and tax reform are
necessary first steps to a successful future for our state, and that
it can actually happen we believe that a determined group of
people can overcome 99 years of history and set Alabama on a progressive
course to a brighter future.
We came here today to be energized by people who believe
that change is possible. We will leave here today with a commitment
to recruit an army of believers... believers in a bright tomorrow
for Alabama. But in order to talk about the future, we need to understand
where we are today. We know that Alabama has an extremely regressive
system of taxation. For real progress we must broaden the tax base,
we must make taxes fair and we must gain some flexibility to address
our most pressing needs. Let us take a moment to review some of the
problems with our present tax system and what we can do about them.
We hear a lot about our cumbersome, outdated constitution.
I believe that our unfair and inadequate tax system is anchored in
the 1901 constitution. That constitution was written to benefit some
people and to burden others, and in doing so it has restricted the
tax base. That tax system has endured because of political muscle
of those who benefit and the challenges associated with changing the
constitution. There are over 400 pages of tax amendments, and special
exemptions cost Alabama over a billion dollars, according the Legislative
It is extremely difficult to change anything to do with
our taxes, whether its property tax, income tax or simply freeing
money from the constraints of earmarking. It is difficult because
our archaic constitution requires that we pass a statewide amendment
every time we want to make a change and it takes an extraordinary
majority in the legislature and a vote of the people to adopt an amendment.
Originally the peoples vote offered yet another opportunity
to block changes in taxes because of voter restrictions aimed primarily
at African Americans. Race-based voter restrictions are behind us
now, but the presumed impotence of everyday people to affect political
change remains locked in our collective political psyche.
But lets look at these three areas income
tax, property tax, and earmarking individually:
Income tax. Alabama is one of the poorest states in the
nation, yet we tax families making as little as $4,600 per year. On
federal returns, families start paying at over $25,000 for a family
of four. Low-wage families in Alabama pay the 3rd highest income tax
rate in the U.S. At the same time we give income tax breaks to our
wealthiest citizens through deductions for federal income taxes paid.
If we connect that tax break to federal taxes, wouldnt it make
sense to connect the lower tax threshold to federal taxes as well?
Alabama Arise has a well thought-out proposal for income tax fairness
that is worth our consideration and support.
Property tax. Alabama has the lowest property tax in
the nation at a rate that is only 1/3 of the national average. Through
a long, calculated process ... orchestrated by special interests,
such terms as "lid bills" and "current use" have become constitutionally
entrenched in our tax system. Year after year our elected officials
genuflect to these tools of special interests, the ancient tax taboos
of the powerful. And so our property taxes remain at such low levels
that we simply cannot provide adequate service for our people.
Low taxes used to be a strong inducement for industry
to settle in Alabama. Now companies looking for a home are also interested
in quality of life issues, good schools and adequate infrastructure.
We are falling behind the competition on that score. In a recent forum
on tax reform, Donald Ratajczak, Director of the Economic Forecasting
Center at Georgia State University, reported that Alabama ranks dead
last among the fifty states in tax revenue per capita. Our tax base,
which is the wealth of our state, the capacity of our people and businesses
to pay taxes, ranks 44th among the states. This is not surprising
because we know that Alabama is a poor state. We can compare our wealth
with our sister states in the southeast. Our tax bases are similar.
But when we consider our tax rate, perhaps a more important measurement
because it reflects the effort we are willing to make, we fall short.
If we matched Mississippi in taxes paid per capita, we would have
400 million more dollars. Matching Georgia in per capita taxes would
give us an additional 2 billion dollars to fund our schools, guard
our prisons, repair our bridges and protect our children.
Earmarking the tax revenues that we do realize are so
restricted that it is impossible to make wise spending decisions in
times of prosperity or when the coffers are nearly empty. Nearly 90%
of our tax revenue is earmarked. The national average for earmarked
funds is 28%, and we are at 90%. When our legislature debates the
general fund, the debate concerns only 10% of the fund. No wonder
Governing Magazine ranked us at the bottom in financial management.
The state cant spend money where it is needed the most in the
short term, and we cant benefit from well-planned spending in
the long term. And right now there is a bill before the legislature
that could earmark up to 61% of the growth in the Special Education
Trust Fund for permanent teachers pay raises every year. Our teachers
deserve competitive salaries, but legislature should not be tied to
specific pay increases regardless of what funds are actually available
or what unanticipated and urgent needs may appear.
A basic, populist distrust of our elected officials plays
right into the hands of those who want to protect the earmarking giant,
but responsible people can elect responsible representatives who can
make responsible decisions based on current conditions. What a revelation!
Now the people of Alabama may not want to raise taxes
on themselves-but they deserve the opportunity to decide. Alabamians
should be able to decide where the money is coming from and where
it is spent. They should not be restricted on all fronts by the unfair,
outdated tax structure that is cemented in our antiquated constitution.
Tax breaks should lighten the load for the poor instead of going solely
to the interest groups with the most clout in Montgomery. We excuse
so many from paying their fair share that we have to raise taxes on
the rest of us to make up the difference.
The sales tax is everybodys favorite revenue device.
Sales tax can be levied locally, without a constitutional amendment
or a vote of the people. It also is the tax that falls hardest on
the poor. Sales tax is seven times harder on the poor than on the
wealthy. A much larger slice of the income of the poor goes to food,
clothing and other necessities. And there are no breaks on food or
over the counter medicine for the poor or elderly. Sales tax is the
most regressive tax, and yet in Alabama we raise four times the revenue
through sales tax than through property tax.
Not only is it unfair to rely so heavily on a regressive
sales tax, it is foolhardy in light of the snowballing e-commerce.
Internet merchandising, which at this time returns no tax revenue,
looms especially large to a state that depends heavily on sales tax
revenue. On-line sales topped $9 billion last year and by some estimates
could be as high as $350 billion by 2002. We must restructure our
tax system to meet the needs of todays service based economy
and then move on to plan for the future - e-commerce and all.
But you know all this. You have come today because you
are concerned about our future. We are all hopeful that finally we
might shed the heavy mantle of an oppressive constitution and ready
ourselves for the millennium ahead. I believe each of us here is committed
to constitution reform and is ready to set and stay that course. But
let me quote Dr. Raabe on tax reform again. "Is the problem too big
to solve, or is the message from the public too quiet, that we demand
a better tax system and that we will do what it takes to put one in
place?" We had better be ready to forge ahead, loudly if necessary,
and take any number of people with us.
I made a speech last year where I shared one of my favorite
"I wish I had said that" phrases which came from Ray Mabus, former
Governor of Mississippi when he spoke to a Leadership Alabama class
about 9 or 10 years ago. That day Governor Mabus said that Mississippi
and Alabama share a common ailment we are victims of the tyranny
of low expectations. I was really taken with that phrase, but whenever
I talked about suffering from the Tyranny of Low Expectations, I was
always referring to those people who cling to the "good old days."
You know, those people who say "if it was good enough for me, its
good enough for my kids."
And then I had an epiphany! The "good old days" people
are not the only ones who are bearing that yoke of tyranny. In fact,
our antiquated constitution has provided the yoke, and now all of
us are suffering from the strain of pulling it along. That is all
except the special interests who molded the specialized tax system,
those who benefit from the extensive earmarking and those who protect
their own power by resisting home rule.
All of us here today, everyday citizens like you and
me, are going to have to overcome this tyranny of low expectations
and we are going to have to bring a lot of people along with us. Those
of us who have the resources, not just financial resources, but emotional
and intellectual resources that enable us to see a better future for
Alabama, are going to have to work toward that vision.
Tax reform is not a new conversation. There have been
two serious attempts at tax reform within the last ten years. One
was led by former Chief Justice Bo Torbert (the Alabama Commission
on Tax and Fiscal Policy Reform of 1990); and another led by Tom Carruthers,
attorney at Bradley Arant in Birmingham (the Tax Reform Task Force
of 1991). These efforts were led by good people with good intentions.
In both cases there was a lot of hard work involved, but nothing really
came of them. Since then we have had Republican and Democrats in the
Governors chair. We have had Republicans and Democrats in the
Lt. Governors chair. And we have not seen any real attempt at
tax reform. All we have seen is some finely crafted Band-Aids that
hold things together temporarily.
Most elected officials those who we expect to
take the lead in addressing such compelling problems dont
even mention tax reform unless they are putting the hex on the idea.
It is going to take real resolve by the people in this tent and the
people of Alabama for us to lead our elected leaders to a new tomorrow.
We are going to have to gather a large crowd and make enough commotion
that our elected officials will think its a parade and race to get
And we can do that. We must translate our belief in a
better tomorrow and our commitment to Alabamas future into a
challenge of the status quo. We must raise our expectations for our
elected leadership and we must speak out loudly when we are disappointed.
We must encourage our elected leadership to be problem solvers, not
partisan adversaries. We must demand that they respond to the voice
of the people and not just to the deep pockets of the special interests.
All of us here must be judged not only on what is said today, but
on what is done tomorrow.
This constitution rally is a great start and we will
leave here with a commitment to tomorrow. We must leave our complacency
behind and be activists for our states future. And we must raise
our expectations for Alabama today and Alabama tomorrow.
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